Deflation - Depression - Debt - Default

Pls read below important points from RP Jr. Doc on Deflation

• Deflation of excess credit was responsible for the past depressions
• Deflation of non self liquidating credit produces great slumps
• Non self liquidating credit is a loan that is not tied to production
• Self liquidating credit is a loan that is tied to production and is paid back from production
• Debt servicing of non self liquidating credit stresses other sources of income
• Credit expansion has two components – willingness to lend and borrow and ability of borrower to pay interest and principal
• In a deflation – creditors become conservative and slow their lending and debtors become more conservative , they borrow less or not at all
• The velocity of money reduces in deflations
• High debt situation becomes unsustainable when the rate of economic strength falls beneath the prevailing rate of interest on money owed and creditors refuse to underwrite the interest payments with more credit
• Global financial system is gorged with non self liquidating credit
• US could decide to inflate its currency as opposed to credit supply. Bond prices would collapse and would neutralize currency inflation until credit markets are wiped out. This would be deflationary. Hence hyper inflation won’t occur for now in the US.
• Productivity increases during depressions as people get laid off and remaining workers put in more effort to cover the slack
• Credit should be supplied by the free market – in which case it will almost always be offered intelligently to producers and not consumers
• Fed would commit suicide by hyper inflating – US bonds are the source of its power
• Inflation of the last 75 years is not currency inflation but credit inflation
• Credit can implode in a depression , currency can not
• Do not reply on any kind of insurance to pay off in a depression
• Currency inflation can continue indefinitely but credit inflation never does – it always implodes
• Gold is not a deflation hedge
• Wherever the T Bill rate goes – the Feds target rate follows